The encashment of a bank guarantee can be stayed only in cases of fraud or irretrievable injustice/injury, and the underlying contract is independent of the bank guarantee.

JUDGMENT

Manmohan, J. (Oral)--Present appeal has been filed challenging the order dated 16th February, 2023 passed by the learned Single Judge in OMP (I) (COMM) 51/2023, whereby the petition of the Appellant under Section 9 of the Arbitration and Conciliation Act, 1996 has been dismissed

2. Learned counsel for the Appellant states that the Respondent had called for tender for the maintenance work at Ch. Brahm Prakash Ayurved Charak Sansthan, Khera Dabar, Najafgarh, Delhi for the period 2022-23 and 2023-24. The same was awarded to the Appellant for a sum of Rs.4,74,24,939/-. He states that the Respondent without following the due process of law and principles of natural justice, terminated the underlying Agreement vide termination notice dated 07th February, 2023. He states that though the Respondent has terminated the Agreement with the Appellant as per Clause 3 thereof, however as Clause 3 provides for various sub-clauses it is not clear under which sub-clause has the said Agreement been terminated by the Respondent.

3. Learned counsel for the Appellant contends that the learned Single Judge has failed to consider that fraud was played by the Respondent since the tender was for comprehensive maintenance, day-to-day repair etc. but the Respondent has claimed upgradation and renovation from the Appellant without paying extra cost to the Appellant. He states that the Respondent has failed to comply with its obligations under the said tender as it has not provided eight lifts in working condition.

4. Learned counsel for the Appellant further states that the learned Single Judge has failed to consider that in the termination notice or the letter dated 13th February, 2023 given to the Bank for the invocation of the Performance Bank Guarantee, no reason, sum or basis has been mentioned, whereas the same should have been mentioned in terms of Clause-3 of the Performance Bank Guarantee. In support of his submission, he relies upon the judgments of this Court in Ansal Properties & Industries (P) Ltd. vs. Engineering Projects (India) Ltd., 1997(41) DRJ 618; Puri International (P) Ltd. vs. National Building Constructions Co. Ltd., MANU/DE/0650/1997 and Marshal Infradevelopers India Pvt. Ltd. vs. Union of India & Ors., MANU/DE/1047/2022.

COURT'S REASONING

ENCASHMENT OF BANK GUARANTEE CAN BE STAYED ON TWO GROUNDS ONLY NAMELY, FRAUD AND IRRETRIEVABLE INJUSTICE/INJURY.

5. It is settled law that encashment of bank guarantee can be stayed on two grounds only namely, fraud and irretrievable injustice/injury. In Andhra Pradesh Pollution Control Board vs. CCL Products (India) Limited, 2019 SCC OnLine SC 985, the Supreme Court has held as under:

"23. The settled legal position which has emerged from the precedents of this Court is that absent a case of fraud, irretrievable injustice and special equities, the Court should not interfere with the invocation or encashment of a bank guarantee so long as the invocation was in terms of the bank guarantee."

(emphasis supplied)

6. As far as the concept of irretrievable injustice and injury is concerned, the Supreme court in Dwarikesh Sugar Industries Ltd. vs. Prem Heavy Engineering Works (P) Ltd. & Anr., (1997) 6 SCC 450 has held as under:

"22. The second exception to the rule of granting injunction, i.e. the resulting of irretrievable injury, has to be such a circumstance which would make it impossible for the guarantor to reimburse himself, if he ultimately succeeds. This will have to be decisively established and it must be proved to the satisfaction of the court that there would be no possibility whatsoever of the recovery of the amount from the beneficiary, by way of restitution."

(emphasis supplied)

7. Consequently, the nature of fraud on the basis of which an encashment of bank guarantee can be stayed is fraud of an egregious nature. It should be a fraud which the bank can detect with minimal investigation. Such is not the case in the present proceedings.

THE UNDERLYING CONTRACT IS INDEPENDENT FROM TH